The business plan is the single most important document
in the development and promotion of any business. Without a well thought out
business plan it is unlikely that a new venture will succeed or be able to
navigate the often difficult and complex environment. When starting a business
people often focus on their great idea but fail to understand the important
components and steps that lead to successful development.
The business plan helps to create the business model.
Each business needs some way of competing in the market. The business plan is
the most significant planning exercise that can lead to the success or failure of
the entity (McKaskill, 2011). Ensuring that it is detailed and critically
analyzed will help minimize problems later.
The formation of a business plan should include research
into each of the areas. Making “rule of thumb” judgments where more exact data
is needed can be a mistake. The quality of the plan is based upon the depth and
strength of the analysis in each of the sections. Inappropriate conclusions and
lack of insight can have serious financial consequences.
The areas of the business plan often include the
following (Finch, 2012):
Executive Summary
Situation Analysis and Assessment of the
Competitive Environment
Researching Market Opportunities and Market
Potential
Market Segmentation, Product Differentiation,
and Positioning
Statement of Marketing Strategy and Goals
Product Planning
Pricing
Place, Physical Distribution, or Location
Strategy
Promotion
Projections of Sales, Costs, and Profits
Summary and Conclusion
The sections are designed to give a broader overview of
the competitive environment, the potential for success, marketing strategies,
pricing strategies, how products/services are to be distributed and promoted.
Understanding each of the components will help the potential business owner
think through their model systematically and ensure major concepts are not left
out or skimmed over.
One component shouldn’t be given excessive interest over
others. According to Cousins (1991), many executives
focus heavily on finance and very little on strategic planning. The mistake in
this approach is that finance can take a very short-term perspective and become penny-wise and pound foolish. Having a strong strategy that is based in part on
finance can lead to greater growth than a purely financial policy with no
vision beyond short-term financing. If a business is going to need financing
then it better have a sustainable strategy.
Everything within the business plan should connect to
everything else. Where there appears to be some aspects that do not fit
together additional research is needed to understand these gaps and find
solutions. For example, the marketing plan should work with the strategic plan
(Bowen, 2002). The entire business plan should work together much like a system
in that the components all promote, push, and work with each other to achieve
objectives. The system should be open enough to ensure that new information
from the environment will afford opportunities to continually adjust that
system for accuracy and relevancy.
If a person plans on funding the business plan with their
own money they can be as simple or complex as they desire. However, when using
other people’s money they will want to be sure they understand the details and
the strategic reasoning. Both the loan department of banks as well as venture
capitalists will use the plan in making decisions to provide funding or pass up
the offer (Varilek, 2013).
The business plan is an integral strategic process that
should not be ignored or completed without deep thought. It could take someone
years to complete a competitive business plan that works. With the majority of
start-ups failing to survive after a few years it is extremely important that
the business model provides an opportunity to grow one’s investment as well as
the investments of others. Opening a business can be risky and there is no
reason to make it riskier by skipping steps.
Bowen, J. (2002). Benefits of a marketing plan. UNLV Gaming Research & Review, 6
(2).
Cousins, L. (1991). Marketing Plans or
Marketing Planning? Business Strategy Review, 2 (2).
Finch, J.
(2012). Managerial marketing. San Diego, CA: Bridgepoint Education,
Inc.
Varilek, M. (2013). Five factors to consider when
borrowing. Wyoming Business Report, 14
(3).
